Tracey McDermott, acting chief executive of the Financial Conduct Authority, told MPs that involvement in offshore business need not raise ‘red flags’ for banks.
Photograph: Murdo Macleod for the Guardian

The City regulator has widened its inquiries into potential links between UK financial firms and the law company at the centre of the Panama Papers revelations, it said on Tuesday.

The Financial Conduct Authority revealed it had now asked 64 firms for information about any involvement with Panama-based lawyers Mossack Fonseca, but had not yet reached any conclusions from its preliminary analysis.

The unprecedented leak of 11.5m files from Mossack Fonseca shed light on the way wealthy individuals use secretive offshore tax havens and led to widespread calls for greater transparency.

The 20 firms were given a deadline of 15 April to respond to the FCA’s request, and 44 given until last week, an FCA spokesperson confirmed after McDermott’s appearance before the Treasury select committee.

She told MPs that involvement in offshore business was not necessarily illegal and need not raise “red flags” for banks.

Admitting she was on holiday in the US when the revelations began to appear in the Guardian and other publications earlier this month, she said the FCA had assembled a team to assess the answers coming in from banks and might need to reprioritise the regulator’s resources in the months ahead to tackle the queries.

“It is far too early to give any views as to preliminary findings,” McDermott said. “It must be remembered there is nothing necessarily illegal about having offshore arrangements. It all depends on their purpose,” said McDermott. She said some of the allegations raised in the Panama Papers “people may or may not approve of, but may or may not be illegal”.

McDermott was also asked about the scale of money laundering in London and said she did not know. But she said: “We could do better. There have been relatively few prosecutions for money laundering in the UK.”

Without specifically mentioning the prime minister, McDermott said the FCA would be looking at whether banks’ anti-money-laundering controls should have raised “red flags”. But, she said: “Somebody investing in offshore trusts is not necessarily a red flag.”

McDermott added: “The reality is, it has long been known there are lots of offshore arrangements made by lots of people for lots of different reasons, many of those reasons are perfectly legal but there is scope for arrangements like that to be used for tax evasion and hide proceeds of more serious criminality.”

But, she said, the publication of the Panama Papers revelations had uncovered allegations of breaches of sanctions, money-laundering offences and other crimes.

She was also asked about a “skilled persons report” commissioned by the FCA into allegations that small businesses were deliberately pushed to the brink of collapse by Royal Bank of Scotland to help the bailed-out bank make a profit. McDermott confirmed the FCA had received the report by Promontory Financial Group, commissioned in January 2014, but had not yet decided whether it would be published in full.

McDermott was also asked about allegations raised by whistleblower Nicholas Wilson that people struggling with their credit card payments were overcharged by a company bought by HSBC. She said there was “active work going on”.